2. Explain why collusion agreements (cartels) often break down. 3. In a small town, there are just two producers of house plants; Paul's Pots and Sam's Succulents. Each firm must decide whether to pursue a high price strategy or low price strategy. The table below shows the weekly profit each firm will earn for the different combinations of strategies chosen. The first number in each quadrant is the profit for Paul's Pots, and the second number is the profit for Sam's Succulents. Answer the questions based on the table. Sam's Succulents High Price Low Price High Price $1500, $1600 $2100, $1700 Paul's Pots Low Price $1800, $1000 $1900, $1100 Does Paul's Pots have a dominant strategy? If so, what is it? Explain using numbers and inequalities. Does Sam's Succulents have a dominant strategy? If so, what is it? Explain using numbers and inequalities. If these firms do not collude, what is the Nash equilibrium (identify the firms' profits and strategies). 4. In Elk Grove, there are just two home builders; Windslide Homes and Buzzeer Homes. Each home builder must decide whether to build on the north side of town or the south side of town. The table below shows the monthly profit each firm will earn for the different combinations of strategies chosen. The first number in each quadrant is the profit for Windslide and the second number is the profit for Buzzeer. Answer the questions based on the table. Buzzeer North Side South Side North Side $100k, $200k $250k, $380k Windslide South Side $150k, $225k $280k, $300k If Buzzeer builds on the north side, will Windslide build on the south side or north side. Explain using numbers and inequalities. Does Buzzeer have a dominant strategy to build on the south side? Explain using numbers and inequalities. If the two firms do not collude, is there a Nash Equilibrium? If so, what will each firm's strategy be? If the firms collude, what will each company's monthly profit be? 5. Suppose Buzzeer offers $35k to Windslide if Windslide builds in the north side of the city. Redraw the matrix showing a $35k decrease in Buzzeer's profit and a $35k increase in Windslide's profit when Windslide builds in the north. Next, answer the questions regarding the new matrix. Buzzeer North Side South Side North Side Windslide South Side Will Windslide change their behavior based on this offer from Buzzeer? Explain using numbers and inequalities. Does Windslide have a dominant strategy? If so, what is it? Explain using numbers and inequalities. Is there a Nash Equilibrium? If so, what will the monthly profit be for each firm